Buffett bashes cash, cheers stocks
Posted
Oct 17 2008, 12:36 PM
by
Kim Peterson
Rating:
Warren Buffett pulls out the pom-poms in a New York Times editorial today urging people to follow his lead and buy American stocks. I want to know which stocks he's buying. And, is holding cash really that bad?
Buffett says he's been buying stocks in his own personal account, in which he previously owned nothing but government bonds. If prices stay attractive, he says, soon all of his personal holdings will be 100% U.S. equities.
"A simple rule dictates my buying," Buffett writes. "Be fearful when others are greedy, and be greedy when others are fearful." And fear is widespread now, he adds.
Buffett goes on to bash cash. At least, the idea of holding on to cash equivalents when you could be buying stock. Cash is "a terrible long term asset," he writes, "one that pays virtually nothing and is certain to depreciate in value."
If inflation takes hold, cash will suffer additional declines as well, he writes. Don't hold on to cash now while you wait for good news, he adds. Equities will "almost certainly" outperform cash over the next decade.
A rare piece of advice from a guy who doesn't say much in public about the state of the stock market. And stocks are better for it today, swinging between gains and losses even with a report out saying that construction of single-family homes fell to its lowest level in 25 years.
Buffett believes in the American economy and its future. And his exhortations may bring some much-needed stability to schizophrenic markets.
But he didn't need to go so far in delegitimizing cash. For some people right now, holding cash is a reasonable and reassuring strategy. It's the best bet if you're going to put kids through college soon, for example. Most people with short-term liquidity needs know this, but Buffett could have toned down the cash trashing a little bit.
Update: The guessing game has begun about what stocks Buffett might be buying. The 24/7 Wall St. blog thinks Buffett bought GE, Goldman and Wells Fargo, based on his previous comments about those stocks. Others he might have added to his portfolio could include Coca-Cola, Kraft, Nike and Burlington Northern Santa Fe.
Related reading:
Buffett becomes the richest American
How Buffett will win in a bailout
How to think like Warren Buffett
Buffett's bet against hedge funds
Classic Buffett
